BofA, Delta, Barclays, Goldman, Deutsche Telekom in Court News

By Elizabeth Amon -
Dec 1, 2010

Testimony by a Bank of America Corp.
employee in a New Jersey personal bankruptcy case may give more
ammunition to homeowners and investors in their legal battles
over defaulted mortgages, Bloomberg News’ Prashant Gopal and
Jody Shenn report.

Linda DeMartini, a team leader in the company’s mortgage-
litigation management division, said during a U.S. Bankruptcy
Court hearing in Camden last year that it was routine for the
lender to keep mortgage promissory notes even after loans were
bundled by the thousands into bonds and sold to investors,
according to a transcript. Contracts for such securitizations
usually require the documents to be transferred to the trustee
for mortgage bondholders.

In the case, U.S. Bankruptcy Judge Judith H. Wizmur on Nov.
16 rejected a claim on the home of John T. Kemp, ruling his
mortgage company, now owned by Bank of America, had failed to
deliver the note to the trustee. That could leave the trustee
with no standing to take the property, and raises the question
of whether other foreclosures could similarly be blocked.

Following the decision, the bank disavowed the statements
by DeMartini, whom it had flown in from California to testify.
It was the policy of Countrywide Financial Corp., acquired by
Bank of America in July 2008, to deliver notes as called for in
its securitization contracts, according to Larry Platt, an
attorney at K&L Gates LLP in Washington designated by the bank
to answer questions about the case.

“This particular employee was mistaken in what she said,”
Platt said in a telephone interview.

Wizmur’s ruling is being scrutinized by lawyers for
borrowers seeking to stall repossessions as a way to press
lenders to modify their debt. Attorneys for homeowners have
already won cases by calling into doubt the legitimacy of
affidavits used to take back properties.

“If this is correct, many, many, many foreclosures already
occurred in which this plaintiff didn’t have the note,” said
Bruce Levitt, the South Orange, New Jersey, attorney
representing Kemp. “This could affect thousands or hundreds of
thousands of loans.”

The case is In the Matter of John T. Kemp, Kemp v.
Countrywide Home Loans Inc., 08-02448, U.S. Bankruptcy Court,
District of New Jersey (Camden).

For more, click here.

Delta Air Wins Dismissal of Virgin Suit Over First-Class Seats

Delta Air Lines Inc., the world’s second-biggest carrier,
won the dismissal of a Virgin Atlantic Airways Ltd. U.K. lawsuit
over a patent for flat-bed seats.

Virgin, the long-haul carrier controlled by billionaire
Richard Branson, sued Atlanta-based Delta in 2008 over claims
that its seats, designed by Premium Aircraft Interiors Group
Ltd., infringed Virgin’s patent. The British carrier “has no
real prospect of establishing infringement,” Judge Richard
Arnold in London said in a judgment yesterday.

The ruling “does not necessarily deprive Virgin of the
possibility of relief against Delta,” Arnold said. “Virgin may
be able to bring a claim against Delta for infringement of one
or more of its U.S. patents. It may also, at some point in the
future, be in a position to sue Delta for infringement of a
European patent containing seat unit claims.”

Following advice from his account manager, Wilson took a
“risky” strategy of short-term buying and selling of a type of
derivatives that resulted in large losses. The brokerage should
have “balanced what was said” by the account manager by
telling Wilson the risks, Asif said.

Wilson operated an execution-only account at GNI between
2003 and 2005, his lawyer Asif said. Even though it was an
execution-only account the brokerage “permitted” Wilson’s
account manager “to provide market commentary and investment
advice” while he wasn’t permitted to do so under Financial
Services Authority rules, Asif said in written arguments.

MF’s lawyer, James Smith, said the manager never gave
investment advice.

“He was merely seeking to assist Mr. Wilson in the context
of an execution-only dealing relationship,” Smith said. “Mr.
Wilson knew perfectly well what he was doing and always would
have traded the way he did.”

Lehman is seeking to prevent Bank of America from using
“unenforceable” clauses of the deal to “improperly” change
Lehman’s right to priority payment on the CDO, according to a
complaint filed Nov. 29 in U.S. Bankruptcy Court in New York.

Seeking money to pay creditors, the bankrupt investment
bank has been using lawsuits and requesting court rulings to
preserve disputed payment rights on derivatives transactions.
The disputes hinge on conflicts between bankruptcy law and the
rules governing swap agreements.

Bank of America, sued in its role as trustee, had no
comment, said spokesman William Halldin.

The bankruptcy case is In re Lehman Brothers Holdings Inc.,
08-13555, U.S. Bankruptcy Court, Southern District of New York
(Manhattan).

IVest Managing Partner Defrauded Investors, U.S. Says

U.S. prosecutors accused IVest International Holdings
Inc.’s managing partner of conspiring to solicit millions of
dollars from investors and using the money for mortgage
payments, golfing expenses and $100,000 in New York Yankees
tickets.

William Graulich IV, 54, of Henryville, Pennsylvania, is
charged with interstate wire fraud for promoting risk-free
investments in notes, letters of credit and other financial
instruments, U.S. Attorney Paul J. Fishman in Newark, New
Jersey, said in a statement yesterday.

“Graulich, along with unnamed co-conspirators, represented
that they had an ‘exclusive’ investment platform available by
invitation only, and that had been previously open only to those
able to invest at least $100 million,” Fishman said. He said
they promised “weekly returns of 22 percent.”

“He’s taken the position that he’s not guilty of any
financial crime,” Graulich’s lawyer, Jay V. Surgent of
Lyndhurst, New Jersey, said in a telephone interview yesterday.
“We’ll proceed with a vigorous defense.”

According to the criminal complaint, one unnamed investor
met Graulich in London for a presentation and invested about
$4.4 million with him. Graulich used a bank account in
Morristown, New Jersey, according to the complaint.

The case is U.S. v. Graulich, 10-8302, U.S. District Court,
District of New Jersey (Newark).

For the latest new suits news, click here. For copies of recent
civil complaints, click here.

Trials/Appeals

SEC Avoiding Criticism on Lehman Deal, Barclays Says

The U.S. Securities and Exchange Commission faulted
Barclays Plc’s purchase of bankrupt Lehman Brothers
Holdings Inc.’s brokerage to avoid “political criticism”
if any brokerage customers don’t get paid, Barclays said in a
court filing.

The U.K. bank asked a New York bankruptcy judge to dismiss
the SEC’s argument that $1.3 billion in pending transfers may be
needed for customers. The assets were allocated to Barclays in a
sale given “unqualified support” by previous SEC commissioners
faced with “a potentially disastrous liquidation” of the
brokerage in the 2008 financial crisis, Barclays said Nov. 29.

“This court should not countenance new SEC commissioners
repudiating their predecessors’ position before this court in an
effort to avoid any perceived political criticism,” it said in
the filing in U.S. Bankruptcy Court in Manhattan.

The U.K.’s third-largest bank is awaiting the judge’s
verdict after a court trial over an alleged $11 billion
“windfall” it made buying the brokerage in the 2008 financial
crisis. Barclays says it is still owed $3 billion allocated to
it in a sale contract signed by all parties to the deal.

SEC spokesman John Nester declined immediate comment.

The SEC said in a Nov. 22 court filing that two transfers
from the Lehman brokerage would violate securities law if they
increased the deficiency in the accounts. They are $769 million
in securities held in the brokerage’s reserve bank account, and
$507 million in assets listed as a debit item in the brokerage’s
customer reserve, according to the SEC.

The SEC “did not raise these alleged prerequisites at the
time of the sale,” Barclays said in court papers. “Barclays
was making an enormous investment (and taking an enormous risk)
by acquiring” Lehman’s business..

The case is In re Lehman Brothers Holdings Inc., 08-13555,
U.S. Bankruptcy Court, Southern District of New York
(Manhattan).

For more, click here.

Ex-Goldman Programmer Aleynikov Stole Code, Jury Told

Sergey Aleynikov, a former Goldman Sachs Group Inc.
programmer, “stole valuable secret computer code” from the
brokerage, a prosecutor told jurors at the opening of the trial
in New York on charges of theft of trading software.

Assistant U.S. Attorney Joseph Facciponti made the
government’s opening statement yesterday in federal court in New
York. Aleynikov’s lawyer followed, saying his client broke a
confidentiality rule of the company and committed no crime.

Aleynikov is charged with violating the Economic Espionage
Act and the Interstate Transportation of Stolen Property Act.
U.S. District Judge Denise Cote, who is presiding over the
trial, dismissed a third criminal count of unauthorized computer
access in September.

If convicted, Aleynikov faces as much as 15 years in
prison.

He “thought that he’d found a foolproof way of getting
around the security barriers” designed to prevent employee
theft of trade secrets, Facciponti told the jury. Aleynikov sent
stolen code to a code-storage website in Europe that wasn’t
blocked by Goldman Sachs, he said. Aleynikov then executed a
program to cover his tracks, Facciponti said.

A defense lawyer, Kevin Marino, argued in his opening
statement that Aleynikov intended to strip out pieces of open-
source software -- software available for use by the public --
contained within the Goldman Sachs code files. He tried to cover
his tracks because he knew he was violating the company’s
confidentiality rules and feared he would be sued by the firm.

“I will dispute to my death that violating a Goldman Sachs
confidentiality provision is a federal crime,” Marino said.

The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District
Court, Southern District of New York (Manhattan).

For more, click here.

For the latest trial and appeals news, click here.

Verdicts/Settlement

Ex-Deutsche Telekom Manager Convicted Over Spy Scandal

A former Deutsche Telekom AG security manager was convicted
of violating privacy rules and improperly using funds for his
involvement in spying on journalists and board members at the
company.

The Bonn Regional Court sentenced Klaus Trzeschan to three
and a half years in prison at a hearing yesterday. Trzeschan,
who was also convicted of fraud, had admitted that he
participated in the corporate spying.

The case centers on allegations that managers at the
company obtained phone records for journalists and supervisory
board members to search for sources of news leaks. Prosecutors
in June dropped probes into former Chairman Klaus Zumwinkel and
ex-Chief Executive Officer Kai-Uwe Ricke.

“I wouldn’t call this a spy affair, because we’re talking
about serious crimes here,” Presiding Judge Klaus Reinhoff said
after delivering the verdict. “We cannot stress enough that
Deutsche Telekom made it really easy for Mr. Trzeschan to commit
these crimes.”

“We will review the written judgment and will comment at
the appropriate time,” Trzeschan’s attorney Hans-Joerg Odenthal
said after the verdict.

For more, click here.

Singapore Airlines to Pay $48 Million Fine, U.S. Says

Singapore Airlines Cargo Pte Ltd. agreed to plead guilty
and pay a $48 million criminal fine for its role in a conspiracy
to fix prices, the U.S. Justice Department said.

The department filed a one-count felony charge in federal
court yesterday accusing the company of helping fix prices
between 2002 and 2006, the Justice Department said in an e-
mailed statement.

The plea deal, which requires court approval, is the latest
in the department’s ongoing investigation into the air-cargo
industry. Including yesterday’s events, 20 airlines and 17
executives have been charged and more than $1.7 billion in fines
have been levied.

In a statement, Singapore Airlines Cargo said it has
cooperated with the investigation.

“The company decided to accept the offer after consulting
its legal advisers and carefully weighing its options,”
according to the statement.

Other airlines that have agreed to pay fines in the
investigation are Polar Air Cargo LLC, a unit of Atlas Air
Worldwide Holdings Inc.; Air France-KLM Group; Cathay Pacific
Airways Ltd.; SAS Cargo Group A/S and Martinair Holland NV, a
unit of KLM.